Monday, July 30, 2012

Its, Hayek's Time

"All this is so
old-fashioned that it has been forgotten. On the eve of the Keynesian
Revolution, Hayek was warning of mal-investments induced by the market rate of
interest being below the natural rate for any length of time. This was the
Wicksell model, tweaked by Ludwig von Mises and Hayek to accommodate bank
credit in the Walrasian framework. It flopped spectacularly in the 1930s and
was forgotten. But good ideas never die in economics. They only wait till their
time comes. This is Hayek’s time.

Sadly, in Hayek as in Marx, economics is
not a policy science and there are no tool kits to fix the problem. Time will
restore the equilibrium perhaps not at the old trend but a new one. When that
will happen is not within economists power to predict. Just wait and see."

But it clearly shows that Mr Desai is confusing what Wicksell or for that matter Walrasian argued with that of Hayek and Mises views on regulating rate of interest at particular level in an economy. The underlying truth is that Mr Desai never got it right the original arguments of Hayek and Mises. Rather he always looks at them through the wild eyes of Keynes!